CFD vs Forex Differences and Similarities

CFD or contract for differences is a popular form of financial derivatives, where a buyer and a seller speculate on an asset’s future price and agree to exchange the difference in the asset’s value over a given period. CFD trading does not involve the buying or selling of any underlying assets; instead, CFD traders only buy and sell contracts.

Buying or selling CFDs?

CFD trading allows traders to benefit from falling as well as rising markets. For instance, if you expect the market to go up, you can go long and buy an open position or contract. On the other hand, if you feel the market will go down, you can go short or sell an open position.

A huge pro of trading CFDs is that you can diversify your trades because CFDs can be traded on various instruments, including stocks, commodities, Forex, indices, ETFs, blends, and bonds. This can obviously be beneficial in the long-run.

Forex or foreign exchange is one of the largest markets in the world, with an annual turnover of trillions of dollars. As the name suggests, Forex traders buy and sell foreign currencies to make a profit from the shifting currency values.

How does Forex work?

For instance, if you want to trade USD for GBP, you’ll go for the currency pair USD/GBP, check the exchange rate, speculate whether the exchange would be profitable in the future, then make the trade through an online broker or exchange platform.

While trading foreign exchange is a great way to capitalize on your funds, it’s also risky because currency prices can be affected by numerous factors, including environmental and political factors or decisions made by large financial institutions.

CFD and Forex are both unique trading instruments, though they do have a few similarities as well:

• Firstly, both CFDs and Forex offer to trade with leverage, which allows traders to trade with borrowed money.
• Similarly, both instruments involve speculation of an instrument’s future price.

Differences between CFDs and Forex:

•  CFD offers the option to trade in a much wider range of assets, making it easier for traders to diversify their trades. Forex, on the other hand, involves trading of currency pairs only.
• While the lot size in Forex trading is usually constant (100’000 units of currency), CFDs offer a wide range of contract sizes. The variation in CFD contract sizes depends on the asset you’re trading.
• The factors that affect the Forex market are mostly economic, political, and environmental, such as employment shifts and international politics. However, the factors that affect CFD markets depend on which instrument/asset you’re trading CFDs on, and what could affect the value of that instrument or asset.

Factors influencing Forex Trading

Important political developments

Tax changes

Consumer & producer preferences – CPI or PPI reports

Interest Rate Decisions - Bank of England MPC Announcements, Fed Interest rate Decisions, etc.

Other market-related FX news

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No instrument can be deemed objectively better than the other, it is a completely subjective debate. However, it’s essential to understand which instrument would suit your trading needs better and that all comes down to what you’re looking for.

If you’re interested in trading with a limited number of currencies with leverage, then Forex trading might suit you. However, if you want to trade in a wide range of markets and diversify your trades, want to make larger trades with limited capital, and would like to have more flexibility with your investments, then CFDs should be your go-to option.

At CAPEX, we offer traders over 2,100 tradable assets that can be traded through CFDs on our smooth and advanced trading platforms – CAPEX WebTrader and MetaTrader 5 (MT5) platform. Plus, we charge the lowest trading fee, commissions, and spreads to ensure our traders have the best trading experience at the lowest cost.

Trading with CAPEX.com

The great thing about CFD trading online is that you can do it anywhere there is a secure internet connection. Inevitably, this means that mobile trading has proven particularly popular as traders can conveniently open and close positions from their mobile or tablet as and when it suits them.

Discover the functionality to ...

Trade more than 2,100 CFDs

Manage your investment horizon

Set take-profit or stop-loss limits

Open short and long positions

No fees for opening and closing positions

Trade with and without leverage (StoX)

Start Trading Now

Beginning your trading journey can be overwhelming, especially when you’re investing in CFDs as they’re risky instruments. However, there are a number of reasons as to why you should begin your trading journey with CAPEX which you can read about below.

We value learning

We believe the secret to becoming an expert trader is to obtain knowledge and focus on ongoing learning. Hence, we offer our traders a range of excellent learning tools and features such as an online trading school – CAPEX Academy, where traders can watch videos to learn to trade.

We offer user-friendly trading platforms

Having a trading platform that is simple and easy to use can make your trading experience much smoother and better. At CAPEX, we offer two unique trading platforms, both of which are highly intuitive and have a simple interface. From the moment you begin trading with us, you’ll notice how everything is neatly aligned and super accessible.

We offer a wide range of tradable instruments.

Whether you’re interested in commodities, Forex, crypto, stocks, or blends – CAPEX offers all of these along with many more tradable assets.

We truly believe that diversifying your trades is an effective way to maximize profits and minimize risk, which is why we offer so many trading options.

We offer Islamic accounts for Muslim clients

We have a diverse range of users and value everyone’s beliefs. So, if you’re a Muslim, you can gain access to a swap-free Muslim trading account. All you have to do is get in touch with our customer support team and provide proof of identity, the rest will take care of itself, and you’ll shortly get access to your personalized Muslim account.

Many benefits when trading with CAPEX

Apart from the benefits mentioned above, at CAPEX we offer excellent customer support seven days a week, some of the lowest trading costs, and the smoothest trading experience with the help of advanced tools. All our these are a result of our dedication to providing traders with the best experience.

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